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How Testosterone Drives Financial Markets

“The hubris that traders experience during a bubble can be as overwhelming as passionate desire or wall-banging anger. They are under the influence of some naturally produced narcotic, one that can transform them into different people. I have come to think of it as the “molecule of irrational exuberance,” and to take seriously the possibility that during bubbles — and crashes — the financial community turns into a clinical population…

In one experiment we sampled hormones from 17 male traders and found that their testosterone did indeed rise with above-average profits, and in other studies, with 54 traders, we found that higher testosterone led to greater risk-taking. These experiments are continuing, but the preliminary data was strong enough to be published by the National Academy of Sciences. We collected equally powerful data suggesting that the molecule of irrational pessimism — which we suspect can promote chronic risk aversion, driving a bear market into a crash — is the stress hormone cortisol.”